The BuyT Desk
The government is planning to impose a tax on the Employee Provident Fund contribution. If one makes a contribution of more than Rs 2.5 lakh annually in their Employee Provident Fund (EPF), the interest earned on contribution over and above Rs 2.5 Lakh will be taxed. So does that mean that EPF has lost its tax-free charm? As compared to other investment Employee Provident Fund still remains to be getting a higher interest as compared to any other small saving investment or the banks fixed deposits. Interest on EPF at present is 8.50% and Employee Provident Fund Organisation has also recommended the government to maintain the same interest for the FY-21-22 as well. The tax on increased contribution will impact high salary earners who could contribute more to their EPF. Government is clear if you can contribute more than Rs 2.5 Lakh in a year then you can very well pay tax on your increased contribution.
How can one increase their contribution to EPF?
Voluntary Provident Fund (VPF) is the answer. If you want to invest more in your employee provident fund then you can do it through the VPF. An employee’s PF contribution can not exceed more than 12 % of his/her basic salary and DA. The employer also contributes exactly the same i.e 12%. However, you can increase your contribution through VPF (Voluntary Provident Fund). If an employee wants to increase his/her contribution to more than 12% of their basic then they can do so by opting for VPF. An employee contribution can go up to 100% of his /her salary through VPF.
How to start VPF?
Employees will have to contact the HR of their company to take advantage of the Voluntary Provident Fund. He/She has to inform the HR department of their respective company requesting them to increase their contribution to EPF. If the company offers VPF service, HR will complete the further process according to the company’s policy. The VPF is usually attached to the employee’s existing EPF account. It can be selected at the beginning of the financial year. The contribution of VPF can be revised every year.
How does VPF work?
– The interest in VPF is the same as what you get on your EPF.
– VPF also gets tax exemption under section 80C of the income tax act. The investment made in the VPF account also comes in EEE category. In this, the money received on completion of investment, interest and maturity period is completely tax-free.
– VPF passbook can be viewed online. Also, a claim can be made online for withdrawal.
– VPF account also has a lock-in period, which is till the retirement or resignation of the employee.
– For the partial withdrawal of the amount from the VPF account, it is necessary for the account holder to do a job for 5 years, otherwise, the tax will be deducted.
– The entire amount of VPF can be withdrawn only on retirement.
– VPF funds can also be transferred like EPF if you change jobs.
